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Monday, April 27, 2009
GM To Cut 21,000 Jobs, Scrap Pontiac
General Motors Corp. said it will cut 21,000 U.S. factory jobs by next year, phase out its storied Pontiac brand and ask the government to take stock in exchange for half GM's government debt as part of a major restructuring effort that would leave current shareholders holding just 1 percent of the company. The struggling automaker said it will offer 225 shares of common stock for every $1,000 in notes held by bondholders as part of a debt-for-equity swap that aims to retire most of GM's $27 billion in unsecured debt.
The announcements came in a filing Monday with the Securities and Exchange Commission. GM is living on $15.4 billion in government loans and faces a June 1 deadline to restructure and get more government money. If the restructuring doesn't satisfy the government, the company could go into bankruptcy protection. GM said in a news release that it will ask the government to take 50 percent of its common stock in exchange for canceling half the government loans to the company as of June 1. In addition, GM is offering the United Auto Workers stock for at least 50 percent of the $20 billion the company must pay into a union run trust that will take over retiree health care expenses starting next year.
Chief Executive Officer Fritz Henderson said the objective of the bond exchange is to reduce GM's $27 billion of outstanding debt by about $24 billion. The company estimates that after the exchange, bondholders would own 10 percent of the company. All the stock offerings mean that current common stockholders would own only 1 percent of the company under the deals, GM said. In a statement, the president's auto industry task force called the announcement "an important step in GM's effort to restructure its company.
"We will continue to work with GM's management as it refines and finalizes this plan and with all of GM's stakeholders to help GM restructure consistent with the President's commitment to a strong, vibrant American auto industry. "The Administration has made no final decision regarding the treatment of its current loan to GM or with respect to any future investments in the company," the task force said. GM said it would speed up six additional factory closings that were announced in February, although it did not identify them in its news release. Additional salaried jobs cuts also are coming, beyond the 3,400 in the U.S. completed last week. Including previously announced plant closures, the restructuring will leave GM with 34 factories at the end of next year, down from 47 at the end of 2008.
The company also said it plans to thin its dealership ranks by 42 percent from 2008 to 2010, cutting them from 6,246 to 3,605. "The Viability Plan reflects the direction of President Obama and the U.S. Treasury that GM should go further and faster on our restructuring," Henderson said in a statement. "This stronger, leaner business model will enable GM to keep doing what it does best — provide great new cars, trucks and crossovers to our customers, and continue to develop new advanced propulsion technologies that are vital for our country's economy and environment."
The new plan lowers GM's break-even point in North America to an annual U.S. sales volume of 10 million vehicles, the company said. That's slightly more than the current sales rate, and most economists expect an uptick in the second half of the year. "This lower break-even point better positions GM to generate positive cash flow and earn an adequate return on capital over the course of a normal business cycle, a requirement set forth by the U.S. Treasury," the statement said.
The company said it would phase out its storied Pontiac brand no later than next year, and the futures of its Hummer, Saturn and Saab brands will be resolved by the end of this year by either selling them or phasing them out. Henderson said in a news conference that the company was spread too thin to make Pontiac work. "We didn't think we had the resources to get this done from a product perspective," or marketing, he said Monday at a news conference. He said the decision was very tough for many at GM because of the brand's heritage.
Henderson said GM wants to develop a plan that doesn't have to be repeated. "We only want to do this once," he told reporters.
-excerpt from NPR